Why Rogers and the Blue Jays Need Each Other

So far this offseason the Yankees have added Jacoby Ellsbury, Brian McCann and Carlos Beltran (while making no secret of their continuing desire to also add pitching), the Red Sox have beefed up their bullpen with the additions of Edward Mujica and Matt Thornton, and the Rays seem poised to strike when they inevitably trade David Price. Meanwhile, the Blue Jays have added…Dioner Navarro. This contrast alone has caused many to complain, but even without looking at moves made by the Jays’ counterparts, this offseason has unquestionably moved very slowly. There are logical reasons for this, of course (Tanaka, anyone?), but this lack of action has nonetheless caused people to wonder if the Jays simply lack the funds to compete on the free agent market[1]. Even with rumours early in the offseason that payroll was rising to $150M, people have begun to assume that the team is simply tapped out. It certainly didn’t help to keep Jays fans rational when on November 26th, Rogers announced that it had acquired exclusive NHL broadcasting rights for $5.2 billion. Fans decided that Rogers had spent all its money on hockey and thus could no longer afford to spend on the Blue Jays. This, of course, is completely wrong. Rogers was only able to make this commitment because of success with the Blue Jays. This success is also why Rogers should continue to support the Blue Jays for a very long time.

On November 25th, I was lucky enough to be able to attend the Sport CEO Summit presented by the Ted Rogers School of Management and Ryerson’s RTA School of Media which was moderated by none other than President of Rogers Media, and direct boss of the Toronto Blue Jays, Keith Pelley[2]. Pelley took some time off from negotiating the biggest hockey media deal in history[3] to come and speak to a room of VIPs and students about working in sports. Somewhere in between the lessons and the banter, the subject turned to Rogers’ commitment to the Toronto Blue Jays, specifically as it relates to payroll. Pelley, as he had been throughout the conversation, was very direct. He stated that Rogers has no incentive to pull back on the commitments they made to improving the roster for 2013. To the contrary, he suggested that they would do what it takes to help ensure that the team is competitive in 2014. He also spoke of the “symbiotic” relationship that the Blue Jays share with Sportsnet. When the Blue Jays are exciting, the network does well. In fact, Sportsnet saw an increase in ratings of 21% across their five channels(East, Ontario, West, Pacific and One – 360, being new, does not qualify) for 2013.

Scott Moore, Rogers Media’s President of Broadcast, had previously echoed that sentiment. He called the Blue Jays a “linchpin of [their] broadcast content strategy” because of how the Blue Jays, even in a poor season, feed their other programming. How nice must it have been for Rogers when the Arencibia-Hayhurst-Zaun fiasco played out? All the eyes and ears would have been tuned to Rogers to see how things were going to play out next. It was must see/listen news for any Blue Jays fan.

While the boost to the ancillary programming is certainly nice, it’s the Blue Jays games themselves where the value truly lies. Baseball on television is an absolutely booming market. This has become abundantly clear thanks to the $12.4 billion worth of national television deals that have been signed recently with ESPN, Fox and TBS. As every team gets to share in this revenue, most estimates have those deals delivering an additional $25-$50M annually to each club. And all of that is without even touching the local markets.

Regional sports networks are where the real money is coming in. The Dodgers just signed a deal that could end up being worth more than $8 billion over 30 seasons and the Phillies just signed a $2.5 billion dollar deal with Comcast Sports Network that, including increased equity in the network, will pay the club over $100 million[4] per season. These same Phillies have seen 40% drops in ratings in each the last two years to an average of just over 100,000 viewers per game. The Blue Jays? They averaged just over 500,000 per game[5] including a record 1.4M on opening day! So how much did the Blue Jays receive from Rogers in 2013? $35 million[6].

Now, these definitely aren’t true 1:1 comparisons as the Phillies numbers are local whereas the Blue Jays ones are national (there is no “local” carrier). That being said, there is a tremendous gap between the Phillies’ payout and the Blue Jays’ one that cannot be explained simply by comparing national ratings to local ones. But even in a direct comparison to the aforementioned ESPN deal, Rogers comes out smelling like roses. ESPN is paying $700M per season to MLB starting in 2014. They signed this deal coming off a season in which they averaged just over 1,000,000 viewers per game in only 80 games[7]. That’s only twice the number of viewers in a country 10 times the size, but they’re paying out 20 times as much[8].

Rogers is clearly receiving a tremendous amount of profit from this venture; this is reflected in the franchise valuation published by Bloomberg which ranked the Blue Jays as the 12th most valuable franchise in baseball at $950M[9]. The ranking is at least partially due to the ability of Rogers to pay out only what is necessary from their tv receipts without any long-term debts due to lengthy tv deals. This is evident in the breakdown, as the overall ranking was heavily boosted by a valuation of $236M that was attributed to the ownership of the regional sports network[10].

So it’s pretty clear why the Blue Jays are valuable to Rogers, but it’s should also be important to Rogers that the Blue Jays are good. For the month of June (which coincided with the Blue Jays 11-game winning streak), Blue Jays games pulled in 575,000 viewers on average. That number fell all the way to 475,000 by the end of July, by which time the team had gone back in the tank. 100,000 viewers represents enormous value (especially over 162 games); it’s roughly equivalent to the entire amount of viewers for which the Phillies receive a nine figure payout. I would say that it seems pretty simple: Winning = $$$ for Rogers.

All of this suggests that there absolutely should be more money there if the Blue Jays need it. Thankfully, the reports that are starting to leak out are suggesting something similar. With recent rumours that the Jays are in heavily on Masahiro Tanaka and among the favourites for Ubaldo Jimenez and Ervin Santana, hopefully people will back off the ledge. Hopefully the Blue Jays will be highly competitive for these three pitchers and that should they fail to land them, it will be because they no longer saw the value, not because Rogers wouldn’t pay for it.

Footnotes

[1]Alex Anthopoulos and John Gibbons also haven’t helped matters by suggesting that any moves for pitching will likely be the result of a trade instead of free agency despite the presence of clear upgrades on the market. Anthopoulos has always maintained that they could be in on FA if prices fall, but Gibbons has said nothing of the sort.[2] The other panelists were Richard Peddie, Chris Overholt and Brian Cooper. This panel was unbelievably well done. Big kudos to RTASchool of Media and a tremendous thanks for the invite. It was entertaining, informative, funny and extremely candid. Nobody pulled any punches.[3] It’s unbelievable that Pelley was even able to get away for 10 minutes, let alone the hour and a half it took to moderate this panel. It shows how committed he was to the event.[4]Scott Boras suggests this number could actually be closer to $200M per season. Take that for what it’s worth.[5]The overall total was actually a small step BACK from 2012, but at least part of that is due to the increased Rogers Centre attendance of over 5000 people per game (this was the highest percentage increase in baseball).[6]This number has been reported by both Bloomberg and Wendy Thurm. This piece by Thurm is also incredibly useful. It’s very noticeable that the big numbers are all the recently signed contracts that end in 15+ years (with the exception of the AWFUL Braves deal).[7] This deal also includes the Home Run Derby (which drew 6.9M viewers) and other programming. Sunday Night Baseball, included in the original number, drew close to 1.9M viewers per game in 2013.[8] Wait a minute…2×10=20! It all makes sense! Math![9]Rogers purchased the Blue Jays for just $160M in 2000. Even with an inflation adjusted price of $216.5M, this represents incredible value.[10]For what it’s worth, Forbes, which does NOT take network equity into account, value the Blue Jays at $568M.

The above article reinforces the fact the Blue Jay Fans need not fret or worry simply the fact is that baseball is a business. Myself, personally, I cannot believe when I read full on journalists write about the impending doom and gloom of the Blue Jay franchise because AA is this, or the cupboard is empty, or they are simply not being given the funds.

Anthopoulos is a genius. Pure and simple. He knows his business and knows that the only thing that matters is the product on the field. He takes intangibles into consideration and combs every detail. He has been wrong a couple of times, but in the case of 2014 I think that there is every good reason, every good reason, to believe the wallet is more powerful than last place. And further, AA wants to keep his job, therefore he must demonstrate he is being frugal with the company funds, and only asking for monetary capital when it is necessary.

It simply is bad business not to have the Blue Jays in the hunt this season. If not for the abrupt cliff that Josh Johnson fell off and the injury bug not being cured, last year was where the franchise thought they would be playing meaningful games in September.

I am actually a little bit glad that they had to learn to earn it. Otherwise like anything else, you don’t appreciate what you are given, and you always protect what you earn.

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For all the rhetoric coming from the guys in charge of the Blue Jays, the fact remains that they need at least one front line (#1 or 2) pitcher and a second baseman with pop. You may not like the Yankee’s (I sure don’t) but at least their owners are quoted as saying that they will do whatever it takes to put a winner on the field for the fans. The Jays on the other hand ask for patience and talk incessantly about value. The maximum five year contract rule is an idiotic case in point.

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